The prevailing and overwhelming consensus is that we are in a “low return” world. After all, with negative bond yields prevailing in many parts of the globe and extended structural valuations evident in key equity markets, it is empirically difficult to see how many markets could deliver decent size, positive returns. This seemingly universal agreement around the inevitability of enduring low returns is problematic. It is absolutely true that for many assets current valuations make the achievement of high returns difficult. This is particularly the case for fixed income assets, where low to negative policy rates, low / negligible / negative bond yields effectively guarantee poor returns over the medium term. Likewise there have been lots of assets priced off these low / negligible / negative yields. What’s less certain though is how long low returns will prevail. In other words, it is far from true to say that we are in an enduring low return environment. History shows that market risk premium can reprice quickly and aggressively. We discuss this in “Real Matters – Best Avoid Landmines” (VIEW LINK)
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